Workers’ wages rise, creating more spending.
It’s a virtuous cycle leading to ongoing economic expansion.
If demand increases but manufacturers don’t increase supply, then they will raise prices.
The economy doesn’t benefit as much when increases go toward high-income earners.
Why is spending important to the economy?
Consumer spending is an important economic factor because it usually coincides with the overall consumer confidence in a nation’s economy. High consumer confidence indicators usually relate to higher levels of consumer spending in the economic market.
Do you help the economy more if you spend or if you save?
Spending is the opposite of saving. Since consumer spending accounts for 71 percent of the gross domestic product, an enduring rise in personal saving would make for a weaker recovery, with fewer jobs.
How does saving benefit the economy?
Higher savings can help finance higher levels of investment and boost productivity over the longer term. If people save more, it enables the banks to lend more to firms for investment. An economy where savings are very low means that the economy is choosing short-term consumption over long-term investment.